Analysis - Remy Cointreau puts China's Cognac love to the test
Remy has seen sales decline in Cognac
In an interview with just-drinks last year, the head of Cognac House Thomas Hine & Co warned of the folly of relying on just one market.
“You have some companies that are selling 70% in China,” François Le Grelle said. “We would never do that. We look for a balance.”
It was clear Le Grelle was talking about Remy Cointreau, whose exposure to the Chinese Cognac market has today (21 January) resulted in a sharp drop in third-quarter sales. The company blamed a raft of anti-gifting measures implemented in the country, and which has slowed down overall premium spirits sales for the past 12 months. However, the Q3 performance of Remy's Cognac, which in FY results last year accounted for 82% of group EBIT, was so bad that one analyst today suggested the China slowdown might be permanent.
There is a “risk of Cognac not recovering in China”, Nomura's Ian Shackleton said.
“We expect some normalisation of business in China from FY15, (but) we see some risk that Chinese consumers do not come back to Cognac again and gravitate more to other Western-style spirits.”
This will be music to the ears of Diageo's luxury Scotch brands and Pernod Ricard's Chivas Regal unit, which last year built a premium spirits production line in Scotland partly to cater to Chinese consumption.
However, Shackleton's opinion may not be shared by all.
Hine head Le Grelle was also a firm believer in the China market, despite his reservations to overexposure. The Chinese, he said as way of explanation, “are really in love with the product”.
For Remy Cointreau's sake, let's hope it is true love.
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